The Real Deal Miami

Blackstone, Paulson back new proposal for Fannie, Freddie privatization

Blueprint would allow mortgage giants to build up more than $155B in reserves

June 02, 2017 08:45AM

Blackstone’s Stephen Schwarzman and Paulson & Co.’s John Paulson

From TRD New York: An investor group including hedge fund Paulson & Co. and the Blackstone Group wants to turn Fannie Mae and Freddie Mac back into private companies without having to pass any new laws.

The two firms paid for a proposal by investment bank Moelis & Co. that would allow the two mortgage insurers to create between $155 billion and $180 billion in capital reserves before the government sells of its stakes to private bidders.

The proposal would keep current affordable housing mandates in place, Bloomberg reported.

The proposal’s future is uncertain and it would need to win the backing of the U.S. Treasury and the Federal Housing Finance Agency, which oversees Fannie and Freddie.

“This plan relies on more administrative movement than D.C. is currently capable of, at least in the near-term, but their proposals are now part of the reform conversation,” Compass Point Research & Trading analyst Isaac Boltansky told Bloomberg.

The federal government took over Fannie and Freddie through a bailout in the wake of the 2008 financial crisis. According to the terms of a 2012 agreement, the Treasury pockets the firms’ profits, making it impossible to build capital reserves. Moelis’ proposal would change that.

The president of the Mortgage Bankers Association, David Stevens, criticized the blueprint. “This proposal is clearly self-serving and designed to confuse unsuspecting, innocent taxpayers into supporting a plan that is intended to line the pockets of hedge funds who invested in Fannie and Freddie,” he said. [Bloomberg] — Konrad Putzier